UK small businesses confident about future

Further evidence that the economy is picking up came yesterday after it emerged that Britain's small businesses are some of the most confident in western Europe.

Optimism about the commercial environment has soared among British entrepreneurs in the first six months of this year, despite the increasingly cloudy outlook being faced by most of their colleagues on the Continent.

Although they expect the general economic situation to worsen, small and medium-sized enterprises in the UK are more positive in nearly every area which concerns their own activities.

There has been a surge in the numbers planning to increase investment in plant and machinery, and, along with higher spending on marketing, research and development and training, more expect to raise additional finance in the next six months.

The findings by 3i, the venture capital firm, in its latest survey of 459 companies from five west European countries, will be welcomed by the Chancellor, Kenneth Clarke, coming as they do after mixed signals from the rest of the economy, with retail sales unexpectedly weak in July and the CBI reporting some improved demand for manufactured goods from a low base.

However, 3i's European enterprise index also contains a warning to Mr Clarke in his battles with the Governor of the Bank of England, Eddie George, over interest rates.

An increasing number of British small businesses expect prices and wages to rise, giving some support to the recent concerns voiced by Mr George about the possible need to raise interest rates for the Government to hit its inflation targets.

The UK survey results contrast sharply with most of those from the four other countries covered, with the French the most gloomy. Small businessmen in France have replaced their German counterparts as the most pessimistic about the state of the economy, 3i says.

The economic index has slumped there by 9 points to -64, which compares with a 7-point improvement to -17 in the UK. French confidence about the prospects for businesses is the lowest of any of the five countries, slipping from 10 to just 4 on the index, whereas in the UK there was a rise of 14 points to 22.

There are growing fears of competition among French businesses and, more than in any of the other countries, an expectation that prices will fall.

Meanwhile, German entrepreneurs, despite being less negative on the prospects for the economy, are gloomier about the state of their own businesses. Optimism about their prospects has fallen from a rating of 17 to 7 and although 46 per cent of small and medium-sized businesses expect to raise more finance, up from 19 per cent before, concerns over competition have increased sharply.

Charles Richardson of 3i said the UK picture was looking quite positive: "There is something of a more confident mood in many businesses. I don't think we're back to boom, boom times, but they are investing more."